Concept explainers
a.
Admission of partner: Changes in the membership of partnership occurs with the addition of new partners or disassociation of present partners. New partners often bring additional capital or needed expertise. A new partner can only be admitted with unanimous approval of all the existing partners, further public announcements are made about admission of partner. Section 306 of Uniform partnership act UPA 1997 states that a new partners are not liable for any liability incurred before new partners admitted. Thus, a new partner can be charged for partnership liabilities of existing partnership to the extent of capital contribution at the time of admission.
The entries when W directly purchases half of M’s investment for $90,000.
a.
Answer to Problem 15.11P
| Debit | Credit | |
| M’s capital account | 80,000 | |
| W’s capital account | 80,000 |
Explanation of Solution
M’s investment in partnership is $160,000 half of which is $80,000 credited to W, and W pays $90,000 directly to M. No entry is required for payment as W paid M directly.
b
Admission of partner: Changes in the membership of partnership occurs with the addition of new partners or disassociation of present partners. New partners often bring additional capital or needed expertise. A new partner can only be admitted with unanimous approval of all the existing partners, further public announcements are made about admission of partner. Section 306 of Uniform partnership act UPA 1997 states that a new partners are not liable for any liability incurred before new partners admitted. Thus, a new partner can be charged for partnership liabilities of existing partnership to the extent of capital contribution at the time of admission.
The entry when W invests amount needed for one-third interest in partnership’s capital and no
b
Answer to Problem 15.11P
| Debit | Credit | |
| Cash | $180,000 | |
| W’s capital account | 180,000 |
Explanation of Solution
Determination of required investment by W
| 2/3 of total capital | $360,000 |
| Total resulting capital ($360,000 / .6666 | $540,000 |
| Amount to be invested by W ($540,000 x 1/3) | $180,000 |
Then investment by W is debited to cash account and credited to W’s capital account.
c
Admission of partner: Changes in the membership of partnership occurs with the addition of new partners or disassociation of present partners. New partners often bring additional capital or needed expertise. A new partner can only be admitted with unanimous approval of all the existing partners, further public announcements are made about admission of partner. Section 306 of Uniform partnership act UPA 1997 states that a new partners are not liable for any liability incurred before new partners admitted. Thus, a new partner can be charged for partnership liabilities of existing partnership to the extent of capital contribution at the time of admission.
The entry when W invests $110,000 for 25 percent interest in partnership and goodwill to be recorded.
c
Answer to Problem 15.11P
| Debit | Credit | |
| Cash | $110,000 | |
| Goodwill | 10,000 | |
| W’s capital account | 120,000 |
Explanation of Solution
Estimation of goodwill
As W is investing for 25 percent of interest which is 1/4th of total capital then
¾ estimated total resulting capital = $360,000
Estimated total resulting capital ($360,000 ÷ ¾) = $480,000
Determination of goodwill
Estimated total resulting capital = $480,000
Less: total assets excluding goodwill
($360,000 + 110,000 W’s investment) = ($470,000)
Goodwill =$10,000
d
Admission of partner: Changes in the membership of partnership occurs with the addition of new partners or disassociation of present partners. New partners often bring additional capital or needed expertise. A new partner can only be admitted with unanimous approval of all the existing partners, further public announcements are made about admission of partner. Section 306 of Uniform partnership act UPA 1997 states that a new partners are not liable for any liability incurred before new partners admitted. Thus, a new partner can be charged for partnership liabilities of existing partnership to the extent of capital contribution at the time of admission.
The entry when W invests $100,000 for 25 percent interest and inventory account decreased before W’s admission.
d
Answer to Problem 15.11P
| Debit | Credit | |
| To record write down of inventory | ||
| D’s capital account | 36,000 | |
| M’s capital account | 24,000 | |
| Inventory | 60,000 | |
| To record admission of W | ||
| Cash | $100,000 | |
| W’s capital account | 100,000 |
Explanation of Solution
Determination of write down of inventory
¼ estimated total resulting $100,000
Estimated total resulting capital ($100,000 ÷ ¼) $400,000
Inventory write down =
Estimated total resulting capital = $400,000
Total net assets before inventory write-down $360,000 + $100,000 W’s investment = ($460,000)
Inventory write-down=($60,000)
Value of inventory debit to D’s capital ($60,000 x .60) = $36,000
M’s capital ($60,000 x .40) = $24,000
e
Admission of partner: Changes in the membership of partnership occurs with the addition of new partners or disassociation of present partners. New partners often bring additional capital or needed expertise. A new partner can only be admitted with unanimous approval of all the existing partners, further public announcements are made about admission of partner. Section 306 of Uniform partnership act UPA 1997 states that a new partners are not liable for any liability incurred before new partners admitted. Thus, a new partner can be charged for partnership liabilities of existing partnership to the extent of capital contribution at the time of admission.
Requirement 5
the entry when W purchases 25 percent interest by paying D $80,000 and M $60,000. The value of land is increased before admission.
e
Answer to Problem 15.11P
| Debit | Credit | |
| Entry for revaluation of land | ||
| Land account | $200,000 | |
| D’s capital account | 120,000 | |
| M’s capital account | 80,000 | |
| To record admission of W | ||
| D’s capital account | $80,000 | |
| M’s capital account | 60,000 | |
| W’s capital account | 140,000 |
Explanation of Solution
Estimation of total capital
¼ of estimated total capital ($80,000 + $60,000) = $140,000
Estimated total resulting capital ($140,000 ÷ ¼) = $560,000
Estimation of increase in land value
Total estimated resulting capital = $560,000
Less: total net asset before revaluation of land
($200,000 + 160,000) (360,000)
Increase in land $200,000
D’s share in the increase in land value $200,000 x .60 = $120,000
M’s share in the increase in land value $200,000 x .40 = 80,000
f
Admission of partner: Changes in the membership of partnership occurs with the addition of new partners or disassociation of present partners. New partners often bring additional capital or needed expertise. A new partner can only be admitted with unanimous approval of all the existing partners, further public announcements are made about admission of partner. Section 306 of Uniform partnership act UPA 1997 states that a new partners are not liable for any liability incurred before new partners admitted. Thus, a new partner can be charged for partnership liabilities of existing partnership to the extent of capital contribution at the time of admission.
the entry when W invests $80,000 for 20 percent interest in the total capital of $440,000.
f
Answer to Problem 15.11P
| Debit | Credit | |
| Cash | $80,000 | |
| D’s capital account | 4,800 | |
| M’s capital account | 3,200 | |
| W’s capital account | 88,000 |
Explanation of Solution
W’s investment of $80,000 for 20 percent or 1/5th of interest
Investment in partnership $80,000
Less: New proportionate book value $440,000 x 1/5
($88,000)
Difference (investment cost < book value) (8,000)
g
Admission of partner: Changes in the membership of partnership occurs with the addition of new partners or disassociation of present partners. New partners often bring additional capital or needed expertise. A new partner can only be admitted with unanimous approval of all the existing partners, further public announcements are made about admission of partner. Section 306 of Uniform partnership act UPA 1997 states that a new partners are not liable for any liability incurred before new partners admitted. Thus, a new partner can be charged for partnership liabilities of existing partnership to the extent of capital contribution at the time of admission.
the entry when W invests $100,000 for 20 percent interest .goodwill to be recorded.
g
Answer to Problem 15.11P
| Debit | Credit | |
| To record goodwill | ||
| Goodwill | $40,000 | |
| D’s capital account | 24,000 | |
| M’s capital account | 16,000 | |
| To record admission of W | ||
| Cash | $100,000 | |
| W’s capital account | 100,000 |
Explanation of Solution
Estimation of total capital
1/5 of estimated total resulting capital $100,000
Estimated total resulting capital ($100,000 ÷ 1/5) $500,000
Estimation of goodwill
Estimated total resulting capital $500,000
Less: total net assets excluding goodwill
($360,000 + 100,000) ($460,000)
Estimated goodwill $ 40,000
D’s share of goodwill ($40,000 x .60) $24,000
M’s share of goodwill ($40,000 x .40) $16,000
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Chapter 15 Solutions
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